Saturday, September 28, 2013


Facebook (FB) has had a tumultuous time since its May 2012 IPO. The IPO price was $38 and quickly headed downhill to a record low of $18.75 in August 2012. The stock remained slumped below $30 per share for most of the year that followed, leaving many investors disillusioned and disheartened.

And that’s just some of the more prominent and high profile situations, all of which seem to have helped to suppress the stock price.

But then in August something changed. The stock finally jumped past the IPO price and continued to climb steadily, reaching a record high of $50.60. Now, suddenly investors who had shunned the company have become drawn to it again. Yet there are still mixed signals about Facebook’s future.

Analyst Northrop Puckett feels that the stock is overvalued, stating that the company will soon “become a shell of its former self, like AOL”.
“The company has a P/E ratio of 175, which is obviously high. It has a forward P/E ratio of 49, which is also quite high, but better than 175. But it seems over-priced considering its fast 5 year growth rate. The company has a PEG (P/E ratio to growth rate) of 5.74 which is very high. For context, Peter Lynch stated that normal stocks have PEGs of around 1. PEGs significantly under 1 mean that the company may be undervalued when taking into consideration its 5 year expected EPS growth. On the other hand, a PEG of 5.74 either means that the stock is i) overvalued compared to its 30% expected growth rate, or ii) that analysts are way off on that growth predictions. It is worth noticing that if predictions for next year's earning growth are correct, you could then see a more reasonable PEG of 2.16 show up. However, that is still relatively high.
Facebook's price-to-sales ratio sits at a quite high 18.57. Additionally, its Q/Q sales are down -19%. Compare it to another (overpriced) online network -- LinkedIn (LNKD). LinkedIn has a price-to-sales-ratio of 21.42, and a Q/Q sales increase of 59%.
Facebook also has an Enterprise Value/EBITDA of 39, which is pretty high. Other "high flyers" like Chipotle (CMG) and Priceline (PCLN) have Enterprise Value/EBITDA of 21.2 and 22.81 respectively.”
Then on the flip side, Jayson Derrick claims the stock is undervalued and will continue to perform.
“1) Facebook has more than 1 billion users, and is still growing this tally above 20% year over year. The massive amount of data that the company has already collected (and will continue to collect) from the billion plus users will be an extremely valuable asset that can be utilized in various ways to generate revenue.
2) Facebook has a vast array of growth opportunities that have yet to be rolled out or even discovered. Specifically, in the near term, the company will roll out video advertisements for U.S users, which can be rolled out internationally over the coming years.
3) Facebook currently has huge investment plans, which include maintaining data servers to keep up with a growing user base. The company has already spent $595 million in 2013 and expects its investments on infrastructure to total $1.6 billion by the end of 2013. In the short term this can lower margins, but an increased investment is a positive aspect as the company continues to expand internationally and gain new users.
4) Management has silenced the bears and nay-sayers who were convinced that the company couldn't meaningfully monetize on mobile users. The company has, so far, addressed what I believe to be the biggest bear argument and only valid thesis against owning shares. Mobile ad revenue represents 41% of the company's revenue mix and is still in its infant stages with significant growth opportunities over the years. In terms of actual numbers, in the second quarter of this year, the company sold $656 million of mobile ads, an increase from $375 million in the previous quarter.
5) Although engagement levels are always a concern, Facebook's measure of daily average users and monthly average users has remained consistently high and showing no signs of faltering. In July, the company reported its daily active users totaled 699 million for the month representing an increase of 27% year over year. In the same month, monthly active users totaled 1.15 billion users, an increase of 21% year over year.”
While both sides have valid points and arguments, this emphasizes the uncertainty behind Facebook’s stock at the present time. Regardless of which situation pans out, one thing is certain, purchasing Facebook stock any time soon is going to be a gamble that should be severely scrutinized beforehand.

Friday, September 20, 2013


Don’t feel bad if you’ve never heard of Flurry before. A lot of people haven’t, but if you own a smartphone your certain to have been affected by this quiet mobile adtech giant. Some surprising information can be found on their website. The company claims to have a reach of over 1 billion devices each month and mines 3 terabytes of data each day through 350,000 apps from 115,000 different companies.

Business Insider’s Jim Edwards had a talk with Flurry CEO Simon Khalaf about the future of the company:
Simon Khalaf, the CEO of mobile adtech company Flurry, tells Business Insider that an IPO is inevitable in the company's future because his business has grown so big.

There has been gossip about a possible Flurry IPO for months now. Large adtech companies are often aimed specifically at IPO "exits," so that their venture capital funders can get a payback on their investments. Millennial Media, Tremor Video, YuMe, Criteo and Marin Software have all gone public recently. Yet when CEOs are asked directly if they want the rich rewards of floating their companies on the public markets, they usually demur or hedge.

When we asked Khalaf about an IPO exit, however, he was refreshingly direct: "I consider an IPO an entrance," he tells us. "We don't have a choice, our volume is too high and our scale is too big for anyone to absorb us."

Flurry has a net revenue run-rate of about $100 million. It has 150 employees and has taken $50.5 million in funding from investors. And although that doesn't make Flurry the biggest player in mobile adtech — InMobi and Velti still have more employees, and Millennial has greater revenues — it is one of the biggest players in big data analytics and mobile app ad reach.

Flurry reaches 1.1 billion mobile devices each month with ad impressions inside apps, almost twice as many as Google, which is alarming because everyone knows that Google has the largest share of mobile ad revenue on the planet, which is in the billions of dollars. But the Flurry’s numbers refer to reach on devices via ads in apps. Google's mobile ad business is largely search. And the bulk of consumer time spent on mobile devices is in apps, not on the web, Khalaf says.

Flurry offers the full mobile ad stack, including a "supply side platform" for mobile app publishers who want to offers ad space for sale, a "demand side platform" for buyers who want to place ads, an analytics suite to measure the whole thing, and most recently a "real-time bidding" platform so that buyers can place ads on a live auction basis. That RTB marketplace, launched in April, already has 30 DSPs buying in it, Khalaf says. The Guardian and The BBC both use Flurry as publishers.

There is one more thing Khalaf is unusually direct about. Flurry is not yet profitable, he says. Usually when adtech CEOs are asked whether their businesses make money, they launch into an explanation of how they're investing for growth or scale (or they say something impenetrably complicated about EBITDA). When asked whether the company is profitable, Khalaf says, "No. In 2014 we're profitable maybe."

The reason: Flurry is spending $28 million a year on data centers. "The cost of analytics is huge," Khalaf says. Flurry wants to create the largest HBase cluster in the business, he says, referring to the gigantic — and gigantically expensive — database serving devices that can handle millions of lines of tabled information.

Friday, September 13, 2013


On Thursday Twitter announced via a tweet that they had confidentially filed their S-1 documents with the Securities and Exchange Commission for a planned initial public stock offering. Twitter, with 200 million users, is the currently most highly anticipated consumer Internet IPO. The excitement surrounding the Twitter IPO will be the largest since Facebook went public in May 2012. For investors looking to get in on the action here is what you need to know.

As Forbes explains, under SEC rules established in the JOBS Act passed last year, companies defined as “emerging growth companies” can file their S-1′s confidentially if their annual revenue is less than $1 billion.
Companies do not have to make their documents public until 21 days before the company goes on the “road show” to pitch the company to big investors on Wall Street for the IPO. The documents remain completely shielded from public until then.

Despite the confidential filing, this does signal that Twitter is making less than $1 billion in annual revenue. That’s generally in line with third party estimates. EMarketer in March estimated Twitter’s revenue at $582 million this year and close to $1 billion in 2014.

Just last week, Twitter acquired mobile ad exchange company MoPub for $350 million in stock, showing the much larger advertising ambitions beyond its promoted Tweets. MoPub offers ad services on a variety of publishers’ apps beyond Twitter.

However, investors are still waiting for details on how many shares of the social media company will be offered, the timing of the offering and the price of the shares. Typically, much-anticipated IPOs are doled out by the investment bankers running the deal to favored clients and long-standing customers. Individual investors interested in buying shares usually have to purchase them in the open market once trading begins. But experts are thinking Twitter may likely follow the lead set by Facebook and other recent IPOs in holding back some shares for individual investors. With most recent IPOs, there will usually be about 20% of the shares outstanding held back for individual investors, says Jay Ritter, professor of finance at the University of Florida.

Interested investors will need to check with their brokerages over the coming months to see how many shares, if any, will be available to them. Most large online brokerages have deals with underwriters that allow them to get allocations to certain IPOs.

More details will be revealed after Twitter officially files its IPO registration statement for the public to see, possibly as early as November.

Fast Facts about Twitter
Twitter was founded 2006 by Jack Dorsey, Biz Stone and Evan Williams.
In the first hour of @Twitter sending their IPO announcement tweet, 7,872 people retweeted the message.
Twitter soared to popularity in 2007 at the South By Southwest Interactive festival in Austin, Texas.
A billion tweets are sent every two and a half days. That's three for every man, woman and child in the U.S.
The 2013 Superbowl performance by Beyonce had 268 million tweets per minute, more than any other event in past two years.

Friday, September 06, 2013


Last week I explored the relationship between the stock market and the imminent US strike on Syria in response to allegations that the Syrian government recently used chemical weapons against their citizens. At that time the market appeared to be in a holding pattern, evaluating the situation but unwilling to make a move. However a lot has happened in the past week which has clearly influenced investors.

Earlier this week the Senate Foreign Relations Committee voted to give President Obama limited authority to use force against Syria. The resolution would limit strikes against Syrian forces to a period of 60 days, with the possibility of 30 more days after consultation with Congress, and it would block the use of American ground troops.

The vote of 10 to 7 by the Senate Foreign Relations Committee capped a day of fierce debate in both houses of Congress that indicated there is a widespread impulse to respond to the deadly chemical weapons attack but deep divisions over how much latitude the president should have to do so.

The Obama administration said that while they expected the full Senate to vote next week, after Congress returns from recess, they did not think the House would act until the week after and were preparing for a prolonged debate. Senate leaders agreed on Wednesday night to hold a brief session on Friday to put the war resolution on the Senate’s calendar so the clock can begin counting down to a final vote toward the end of next week.

Secretary of State John Kerry argued the Obama administration’s case before the House Foreign Affairs Committee stating that extremist groups fighting against the Syrian government would become stronger if the United States did not carry out a military strike. Mr. Kerry said the United States had worked hard in recent months to persuade Arab nations and benefactors not to finance or arm the more extremist rebels who are battling Mr. Assad’s forces. But if the United States does not punish the Assad government, Mr. Kerry said, it is likely that some Arab supporters of the Syrian opposition will provide arms and financing to the best rebel fighters, regardless of whether they are extremists. “We will have created more extremism and a greater problem down the road,” Mr. Kerry said.

However, most world leaders do not believe that a US attack is the best course of action. UN Secretary General Ban Ki-moon has warned that any military strikes against Syria for an alleged chemical weapons attack are legal only in self-defense or if approved by the UN Security Council. Ban also cautioned nations such as the United States and France that may be considering such strikes that any "punitive" action taken against Syria could unleash more turmoil and bloodshed.

Pope Francis urged the world to abandon the "futile pursuit" of a military solution in Syria. "To the leaders present, to each and every one, I make a heartfelt appeal for them to help find ways to overcome the conflicting positions and to lay aside the futile pursuit of a military solution," Francis wrote in a letter to Russian President Vladimir Putin as the G-20 meeting got under way in St. Petersburg.
Russia opposes any outside military intervention in Syria's civil war and says it suspects the gassings were staged by rebels seeking foreign involvement in the conflict. Putin escalated concerns when he indicated in an interview that his country could send the components of a missile shield to Syria and the region if the U.S. attacks. U.S. Gen. Martin Dempsey, chairman of the Joint Chiefs of Staff, testified this week that the Russians might even replace any military assets the U.S. destroys in a strike. This raises the possibility of a "limited" strike on Syria turning into a proxy war between Russia and the U.S.

The United States also claims to have intercepted an order from an Iranian official instructing militants in Iraq to attack U.S. interests in Baghdad in the event the Obama administration launches a military strike in Syria.

China is warning that any military action against Syria will push up oil prices and hurt the world economy. Speaking in St. Petersburg Thursday, Chinese Vice Finance Minister Zhu Guangyao said that "Military action would have a negative impact on the global economy, especially on the oil price - it will cause a hike in the oil price," before citing estimates that a $10 rise in oil prices could push down global growth by 0.25 percent.

Oil prices are largely unchanged in the past week with West Texas Intermediate currently at $108.37 compared to $108.80 last week and Brent Crude currently at $115.26 compared to $115.16 last week.

Aerospace and defense stocks have seen gains over the past week however.

Lockheed Martin (LMT) is currently $124.14 compared to $122.50 a week ago.
52wk high: 126.729
52wk low: 85.88
EPS: 8.92
PE: 13.70
Div Rate: 4.60
Yield: 3.7055
Market Cap: 39.84b
Volume: 1.34m

Boeing (BA) is $106.65 currently compared to $104.00 this time last week.

52wk high: 109.49
52wk low: 69.03
EPS: 5.47
PE: 19.20
Div Rate: 1.94
Yield: 1.819
Market Cap: 80.46b
Volume: 2.59m

Northrop Grumman (NOC) spiked from $92 to $94 earlier this week but has settled to just under $93 currently.

52wk high: 96.4201
52wk low: 62.80
EPS: 8.04
PE: 11.60
Div Rate: 2.44
Yield: 2.608
Market Cap: 21.41b
Volume: 54.39k

General Dynamics (GD) experienced a $2 increase earlier this week and is currently about a dollar higher than last week.

52wk high: 87.85
52wk low: 61.70
EPS: -0.85
Div Rate: 2.24
Yield: 2.6359
Market Cap: 29.48b
Volume: 78.89k

Raytheon (RTN) shares are also about a dollar higher than last week after seeing an increase of more than $2 earlier in the week.

52wk high: 77.93
52wk low: 52.24
EPS: 5.91
PE: 12.80
Div Rate: 2.20
Yield: 2.9024
Market Cap: 24.28b
Volume: 156.79k

In light of the events and the market movement in these stocks this week it’s apparent which way investors are leaning on the issue. If you haven’t already examined the possibility of adding one or more of these to your portfolio then now is the time to do so.